Should Shareholders Know About a CEO’s Divorce?

From a paper out today by David F. Larcker, Allan L. McCall, and Brian Tayan of Stanford University:

When Rupert Murdoch, Chairman and CEO of News Corp, announced that he and his wife Wendi of 14 years were filing for divorce, shares of News Corp traded 1.4 percent higher. A prenuptial agreement meant that Wendi would not have access to Murdoch’s 38 percent economic stake in the company, nor would the divorce threaten the planned spinoff of the company’s newspaper assets into a separately traded corporation. According to a spokesperson, the divorce would have “zero impact on the company.”

By contrast, when news leaked that Harold Hamm, Chairman and CEO of Continental Resources, was getting divorced from wife Sue Ann of 25 years, shares of the company fell 2.9 percent. The Hamms did not sign a premarital contract, making Harold’s 68 percent ownership stake (worth $11.2 billion) subject to equitable distribution under Oklahoma family law. Despite a company press release that the divorce “has not and is not anticipated to have any impact or effect on the Company’s business or operations,” not everyone was convinced.

The collapse of a chief executive’s marriage has ramifications for stakeholders beyond the possibility their ownership stake in the company could be split up. More on this after the jump…

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